LAST WEEK – KEY TAKEAWAYS

US: Job market rebounds in June

• Yields on US government bonds rose and the US dollar strengthened against other major currencies as the US economy beat forecasts to add 224,000 new jobs in June1;
• Meanwhile, trade optimism following the constructive meeting between President Trump and Xi Jinping at the G20 summit propelled US equities to a record high, although Trump threatened additional tariffs on European goods in response to EU subsidies for the aviation industry.

• Omnis view: The rebound by the US job market after May’s setback means expectations of a 0.5% (or greater) rate cut at the Federal Reserve’s next meeting at the end of July might need to be revised. Yield on two-year US government bonds for week commencing 1st July 2019
(source: ft.com)

Europe: Lagarde nominated as new ECB president

• Yields on European government bonds fell following the nomination of Christine Lagarde, currently head of the International Monetary Fund, as president of the European Central Bank (ECB);
• Elsewhere in Europe, Italy avoided EU disciplinary measures after the country’s coalition government pledged to reduce its budget deficit over the next two years.

• Omnis view: Lagarde is considered more flexible and accommodative on monetary policy than other candidates, which led to the bond rally. However, her appointment must be confirmed by the European Parliament.

UK: Carney warning about growth outlook

• Yields on UK government bonds fell as Bank of England (BoE) governor Mark Carney warned that uncertainties including Brexit and trade tensions could weigh on UK and global economic growth.
1 https://www.dol.gov/newsroom/releases/osec/osec20190705

• Omnis view: The odds of an interest rate cut by the BoE at some stage this year have increased after Carney’s comments.

LOOKING AHEAD - TALKING POINTS

Economic data

• Wednesday- Chinese inflation rate in June; UK monthly economic growth in May;
• Thursday- US inflation rate in June;
• Friday- Chinese imports, exports and balance of trade in June.